IBM Corp. has talked about the technology behind its on-demand software initiative for over a year now, but on Wednesday the computer giant turned its attention to the customer at an event held at the San Francisco Museum of Modern Art.

Speaking at the event, which was orchestrated for IBM customers representing a wide range of industries, IBM Chairman and Chief Executive Officer Sam Palmisano took stock of the changes in the information technology industry and how they are affecting his company's on-demand strategy, one year after it was launched.

Though on-demand has been associated with a variety of industry trends including utility computing, application integration and data center consolidation, Palmisano said that, at its core, the strategy is about freeing up resources and providing better integration between IT and business processes.

IBM recently completed a survey of 33,000 global corporations that found that the number of companies turning to on-demand computing had doubled in the last year, Palmisano said.

"The biggest problem that these folks face today is 30 to 40 percent of their resources are tied up integrating non-compatible technologies," he said. "If we could take those resources and free them up for them to do productive work, they would spend more."

Palmisano predicted that freeing up this money to be spent in new areas would lead to market explosions, but that they would be different from the product-centric shifts that IT companies have come to expect. "There are a lot of people out here who want it to be a gizmo because they know gizmos, and the VC (venture capitalist) world likes gizmos because it's a pure-play model."

"This industry's 50 years old," he said. "We've got to get off gizmos and get off gadgets."

The high technology industry's focus on the microprocessors and devices has not always best served the customer, he said. "If you look back at this wonderful industry, I think it's best described as invent and desert," he said. "We create these incredible things in our laboratories, and we thrust them on you."

Often, this model has led to "incredible failures," Palmisano said.

"Do you all remember the cashless society or the paperless office? I know you remember this: the new economy," he said, prompting laughs from the audience.

The trillion-dollar IT industry's growth will now be driven by the merging of business processes and information technology, according to Palmisano. He cited Procter & Gamble Co.'s recent deal to outsource human resources applications for its 100,000 employees to IBM as an example of this trend and, later, was joined onstage by General Electric Co. (GE) Chairman and Chief Executive Officer Jeffrey Immelt, who claimed to be a beneficiary of IBM's on-demand technology.

Immelt said GE was using on-demand technology to increase the percentage of company resources that were directly involved in revenue growth. GE has reduced the number of its systems platforms by 20 percent in pursuit of this goal, he said. The company has also slashed the number of accounting applications that it runs by 70 percent.

As an example of the meeting between business processes and IT, Immelt showed a real estate underwriting application that GE executives were using to standardize the company's real estate acquisition process. GE standardizes the information technology component of two or three business processes each year that the company has defined using the Six Sigma quality control methodology, he said.

But exactly where IBM's on-demand effort is aiding this effort was left unclear, and when an audience member asked Immelt to explain what kind of on-demand job skills his company was seeking, GE's CEO referred the question to Palmisano.

Whatever the precise definition of on-demand may be, Palmisano was adamant that it would be built on open standards like Linux, Java, and the emerging OGSA (Open Grid Services Architecture) grid standard.

Palmisano said that 50,000 companies had begun switching their Windows applications to Linux. He added the Grid is now beginning to attract attention outside of academia as an architecture for business analytics. "A year ago we said that grid computing is real today," he said. "There are 100 companies that are there now. And guess what, they're not doing particle physics."